Fighting loan sharks at the Missouri Supreme Court

June 25, 2012 | By | 9 Replies More

More than 180,000 Missouri Citizens signed petitions to allow Missourians to vote to put a cap (of 36%) on payday loans and other small consumer loans this coming November. Here is some background information on the ballot initiative. But then the predatory loan industry lawyered up, bringing multiple suits to throw out all of the signatures in an attempt to destroy this ballot initiative.

Today, John Campbell and I traveled to Jefferson City to participate in an afternoon of oral arguments before the packed courtroom of the Missouri Supreme Court. John and I (we both work with The Simon Law Firm in St. Louis) also helped to write an appellate brief on behalf of those who seek to allow Missouri voters to decide this critically important issue this November. There was lively argument before an attentive court on numerous contentious issues drummed up by the predatory loan industry. We expect a ruling from the Missouri Supreme Court within the next month on this issue. It is our hope that the Court will rule that Missouri citizens will have the final say on whether loans that currently run from 300% – 500% will be capped at no more than 36%.  This is critically important because these loans are currently dangerous products that trap consumers in long-term debt, and drive many people into foreclosures and bankruptcy.  For many decades, Missouri did fine without loan-shark rate interest rates, and it’s time to make things right.  Stay tuned.

If you want more detail, all of the appellate briefs can be read at the site of the Missouri Supreme Court.


Category: Court Decisions, Law

About the Author ()

Erich Vieth is an attorney focusing on consumer law litigation and appellate practice. He is also a working musician and a writer, having founded Dangerous Intersection in 2006. Erich lives in the Shaw Neighborhood of St. Louis, Missouri, where he lives half-time with his two extraordinary daughters.

Comments (9)

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  1. Adam Herman says:

    That won’t cap loans, it will eliminate payday lenders. They can’t be profitable at 36%. Which means poor workers won’t have access to emergency funds when they need them.

    They tried to do that in Florida, and the payday lender customers proved to be the most powerful lobby group the lenders could muster. They urged customers to call their legislators and it worked.

    • Erich Vieth says:

      I’ve seen many people who thought it would be a solution to their problems to take out a 400% payday loan. That actually “solved” their problem in the short term (for about two weeks), but it ruined their lives in the long run.

      To analogize, should we allow Big Pharma to sell drugs that promise to solve your medical condition when that drug only make you feel good for 2 weeks, then causes you to be addicted to that expensive drug for the rest of your life? Even with detailed disclosures, should we allow that sort of drug to be sold?

      Note also, that many credit unions offer payday alternative loans. Up to $500 at 36% or less. The program includes financial counseling and the customer ends up with 10% of the principle in a new savings account when the loan is paid off. Compare this approach to the brutality and mendacity of the “free market.”

  2. Adam Herman says:

    If you have a credit union with such a program, that’s great. And it’s true that a lot of people fail to use payday loans responsibility, thus the insanely high interest rate. But for many, it is a godsend, and payday lenders won’t lend to someone who defaults. Plus the amounts are not huge, they are usually capped at $500 in most states where I’ve seen them advertised.

    Wouldn’t a better approach be to reduce the allowable loan, so that people don’t get in so deep?

    • Erich Vieth says:

      There are some people who take out payday loans and pay them off two weeks later. That is true. For every one of those, there are people who become payday loan tragedies, because of this dirty secret: Payday lenders don’t do any underwriting. They don’t care if you are already loaded up with debt when you come in. They make you give them a post-dated check, and threaten to take it to the bank repeatedly–this would hammer the lenders with lots of insufficient funds fees and penalties. The lenders get you on the hook, and then string you along with a series of fake new loans in order to circumvent caps on the number of renewals that are on the books. These are dangerous financial products for many people. Based on what I’ve seen, at least half of the people taking out these loans are going to get trapped in endless debt. Many of these loans should never be given out.

      Your approach of reducing the principal is one way to get the job done. The one I prefer is to cap the interest rate allowed. Through history, rates of 300% and more were considered immoral and made illegal. Nothing like a powerful lobby to change that. And keep in mind that big banks fuel this industry with their lines of credit.

  3. Adam Herman says:

    Well, the history of usury is primarily motivated by religious beliefs and was in fact used as a cudgel to harass Jews at one time. All usury really is is a price control and modern economic science has shown us again and again that prices are neither immoral nor moral, but that price controls are disastrous.

    There really are no victims here though. The most you can usually take out is $500, and if you don’t pay it back, you know what happens? Nothing. You just can’t get another payday loan. But what happens if you don’t pay your rent or the electricity? Then you have a bigger problem.

    I just think this is something where the consequences could be worse than the status quo. Besides, now you can just do payday loans on the internet, they can operate out of Antigua or something.

    • Erich Vieth says:

      That’s not true. The payday lender ruins your credit and repeatedly submits your bad check to the bank, running up fees and penalties. This causes you to be unable to pay your electric bill.

      You’re right that religious motives inspired many usury laws. But these low rates were the law of the land, across the US until the financial industry bought Congress.

  4. Adam Herman says:

    If those tactics are allowed in some states, that has to be dealt with. REgulations could forbid credit reporting for payday loans and repeated attempts to withdraw the money from the person’s checking account. In Florida, there is no limit to the interest rate, but payday lenders don’t engage in those tactics, presumably due to regulation.

    In Florida, people just get into $500, they roll over the payday loans for a few months, then they just default. The payday lender still profits and the debtor is really no worse off.

  5. Erich Vieth says:

    Financially desperate people are increasingly turning to payday loans. From Common Dreams: “The Pew report shows that now the average borrower may take out eight loans a year of up to $375 each and spend $520 in interest. The loans typically hold and APR of up to 400 percent.”

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